HSBC, Libor Manipulation, Microsoft, JPMorgan: Compliance

July 18 (Bloomberg) -- HSBC Holdings Plc’s head of group
compliance, David Bagley, told a Senate hearing he will step
down amid charges the bank gave terrorists, drug cartels and
criminals access to the U.S. financial system by failing to
guard against money laundering.

Bagley was among at least six HSBC executives who testified
before the Senate’s Permanent Subcommittee on Investigations
yesterday after the panel released a 335-page report describing
a decade of compliance failures by Europe’s biggest bank.
London-based HSBC enabled drug lords to launder money in Mexico,
did business with firms linked to terrorism and concealed
transactions that bypassed U.S. sanctions against Iran, Senate
investigators said in the report.

Irene Dorner, president and chief executive officer of HSBC
North America Holdings Inc., was also among executives who
appeared before the committee.

Senate investigators focused on New York-based HSBC Bank
USA NA as a “nexus” for U.S. dollar services and transfers.
Senator Thomas Coburn of Oklahoma, the subcommittee’s senior
Republican, pointed out that HSBC isn’t alone and that “similar
problems exist at other banks.”

Senior executives from HSBC, credited with providing
millions of pages of documents for the investigation, expressed
contrition and promised changes in response to the findings
after Levin said the bank’s failings should provide sufficient
cause for U.S. regulators to consider revoking its charter.

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Compliance Action

Seven Banks Under U.K. Libor Investigation as FSA Criticized

The U.K. financial regulator said it’s investigating seven
lenders over attempts to manipulate interbank offered rates as
lawmakers criticized it for not opening the probe earlier.

The FSA investigation, which led to a record $453 million
fine last month against Barclays Plc by U.K. and U.S.
authorities, wasn’t opened until 2010, despite press reports and
submissions from bank employees that the London interbank
offered rate was being manipulated as early as 2007.

The FSA is now investigating seven banks on suspicion of
submitting false interest rates, and regulators in other
countries are looking into additional lenders, Tracey McDermott,
the regulator’s acting head of enforcement, told the panel,
without identifying any of the firms. The FSA is seeking to levy
more civil fines, she said.

Royal Bank of Scotland Group Plc, UBS AG, Lloyds Banking
Group Plc and Deutsche Bank AG are among the lenders regulators
in Europe, Asia and the U.S. are investigating.

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Bernanke Says Banks Underreporting Libor ‘Very Troubling’

Federal Reserve Chairman Ben S. Bernanke said the
underreporting of London interbank offered rates is
“unacceptable behavior” and the U.S. central bank offered a
“substantial response” to address the problem.

The disclosures are “not only very troubling in themselves
but they have the effect of undermining public confidence in
financial markets,” Bernanke said during testimony yesterday to
the Senate Banking Committee in Washington.

The Fed didn’t have information to suggest that banks were
manipulating rates “for profit,” only that some were
“possibly submitting low rates to avoid appearing weak” during
the financial crisis, Bernanke said. The Fed doesn’t know that
U.S. banks are innocent of rate-rigging, and the Federal Reserve
Bank of New York is still looking into the situation, he said.

The U.S. central bank is drawing more scrutiny from
lawmakers critical of its record as a bank regulator after the
New York Fed released documents showing it was aware that
Barclays Plc underreported borrowing costs in 2008. Barclays was
fined a record 290 million pounds ($452 million) last month and
the scandal cost Chief Executive Officer Robert Diamond his job.

The New York Fed knew “some banks” were potentially
understating submissions for Libor as early as 2007, according
to a statement posted on its website last week. A Barclays
employee told a New York Fed staff member in April 2008 that the
U.K.’s second-largest lender was underreporting its rate to
avoid a “stigma,” the Fed district bank said.

Libor is calculated from a daily survey carried out for the
British Bankers’ Association, in which the world’s biggest
lenders are asked the rate they’re charging to borrow over a
variety of short-term maturities in currencies including
dollars, euros and yen. Banks have been accused of low-balling
submissions for the benchmark during the financial crisis.

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Ex-UBS France Employee Charged in Tax Inquiry After Raids

A judge leading a tax-fraud investigation concerning UBS
AG’s French unit has charged a second person with aiding in
illicit marketing and money laundering.

Judge Guillaume Daieff charged the person, a former UBS
employee in Lille, France, on July 12, Agnes Thibault-Lecuivre,
a spokeswoman for the Paris prosecutors’ office, said yesterday.

UBS is “fully cooperating with the French authorities,”
according to an e-mailed statement by the Zurich-based bank.

French tax investigators have searched UBS offices in
Bordeaux, Strasbourg and Lyon as part of the inquiry, seizing
hard drives, documents and questioning employees. The bank
hasn’t been accused of any wrongdoing in the matter, Thibault-Lecuivre said.

The case began in April after a preliminary inquiry into a
complaint by France’s national bank regulator over marketing
practices.

UBS avoided prosecution in the U.S. in 2009 by paying $780
million, admitting it helped thousands of Americans evade taxes
and turning over the names of 250 American clients to
authorities. UBS later revealed another 4,450 accounts held by
clients in the country.

Agence France-Presse initially reported the charge against
the former employee yesterday.

Microsoft Faces EU Antitrust Probe Over Browser Choice

Microsoft Corp. risks European Union penalties for failing
to comply with a settlement to give users a choice of web
browsers, more than two years after it tried to end a decade-long clash with antitrust regulators.

EU Competition Commission Joaquin Almunia said Microsoft
may have misled regulators by failing to display a browser
choice screen to users of the Windows operating system since
February 2011. The world’s largest software company blamed a
technical error for not showing the screen to some users and
offered to extend its commitment until March 2016.

Microsoft has already been fined 1.68 billion euros ($2.06
billion) in EU antitrust probes, including an 899 million-euro
penalty for failing to obey an order to share data with
competitors. The Redmond, Washington-based company agreed to
offer access to rival browsers as a part of a 2009 settlement to
repair its relationship with the bloc’s regulators. It told
regulators last December that it was complying with its
commitments.

“I trusted that the company’s reports were accurate,” EU
Competition Commissioner Joaquin Almunia said in an e-mailed
statement. “If, following our investigation, the infringement
was confirmed, Microsoft should expect sanctions.”

Microsoft said it only learned this month that it didn’t
offer its browser choice software to some 28 million computers
running Windows 7 Service Pack 1, or 10 percent of the computers
that should have received it. It blamed a technical error and
said it has already started distributing a fix.

“We deeply regret that this error occurred and we
apologize for it,” Microsoft said in a statement. “We
understand that the commission may decide to impose other
sanctions.”

Medicaid Drug-Reselling Fraud Crackdown Targets 48 People

The U.S. charged 48 people with taking part in a
“massive” Medicaid fraud scheme to divert and traffic hundreds
of millions of dollars in prescription drugs around the country.

More than a dozen people were arrested yesterday in New
York by agents of the Federal Bureau of Investigation, said
Peter Donald, a spokesman for the FBI’s New York office.

An indictment unsealed yesterday in federal court in New
York charges 42 people with obtaining free or low-cost drugs to
treat HIV, schizophrenia and asthma through Medicaid and re-selling them. Six more people were charged in a separate
criminal complaint. Medicaid is the federal-state program to
help cover the health-care costs of people with low incomes.

“The defendants and their co-conspirators profit by
exploiting the difference between the cost to the patient of
obtaining bottles of prescription drugs through Medicaid --which
typically is zero -- and the hundreds of dollars per bottle that
pharmacies pay to purchase those drugs,” prosecutors in the
office of Manhattan U.S. Attorney Preet Bharara said in the
felony indictment.

To reap maximum profits, the scheme targeted the most
expensive drugs, including HIV medications such as Atripla,
which costs $1,635 a bottle, and Trizivir, which costs $1,347 a
bottle. The Medicaid recipients sold the drugs to corrupt
distribution companies, which acted as wholesale distributors,
thereby concealing the origin of the medications.

The cases are U.S. v. Viera, 11-CR-1072; U.S. v. Oria, 12-MAG-1854, U.S. District Court, Southern District of New York
(Manhattan).

Hedge Fund Consultant Wesley Wang Admits to Passing Tips

Wang pleaded to two counts of conspiracy to commit
securities fraud in Manhattan federal court on July 13, Jerika
Richardson, a spokeswoman for U.S. Attorney Preet Bharara, said
yesterday. He’s set to testify against Doug Whitman, the hedge
fund founder indicted in February for insider trading, at a
trial slated to begin July 30, according to a filing in
Whitman’s case.

Wang worked from 2005 to 2008 as a consultant for a hedge
fund with offices in New York, prosecutors said in a charging
document filed July 13. The U.S. said he traded tips with two
unnamed co-conspirators: the president of a California
investment advisory firm and the managing director of a
different hedge fund with New York offices.

In a second conspiracy, Wang passed tips to a third unnamed
co-conspirator while working for a different New York hedge fund
from 2002 to 2005, prosecutors said.

Wang was paid $1.5 million for his work for the hedge fund
between 2005 and 2008, according to the charges.

Bill McBride, a spokesman for Whitman, had no immediate
comment on Wang’s expected testimony.

The case is U.S. v. Wang, 12-CR-541, U.S. District Court,
Southern District of New York (Manhattan).

Byman to Lead Jenner & Block’s Review of Peregrine for NFA

Robert Byman, the Jenner & Block LLP partner who worked
with Lehman Brothers Holdings Inc.’s bankruptcy examiner Anton
Valukas, is conducting the National Futures Association’s
internal review of its auditing procedures and its oversight of
Peregrine Financial Group Inc.

“I’ll be heading up our team but it’s an internal matter
and I can’t comment further,” Byman said by phone yesterday.

The NFA on July 9 announced at least $200 million in client
funds were unaccounted for at Cedar Falls, Iowa-based Peregrine.

The U.S. Commodity Futures Trading Commission sued
Peregrine in federal court in Chicago on July 10, accusing
Wasendorf and his firm of misappropriating client funds.

Peregrine filed for Chapter 7 court protection in U.S.
Bankruptcy Court in Chicago on July 10.

Larry Dyekman, a spokesman for the NFA, declined to comment
on the review of Peregrine.

The regulatory case is U.S. Commodity Futures Trading
Commission v. Peregrine Financial Group Inc., 12-cv-05383, U.S.
District Court, Northern District of Illinois (Chicago).

The criminal case is U.S. v. Wasendorf, 12-mj-131, U.S.
District Court, Northern District of Iowa (Cedar Rapids). The
bankruptcy case is In re Peregrine Financial Group Inc.,
12-27488, U.S. Bankruptcy Court, Northern District of Illinois
(Chicago).

Compliance Policy

JPMorgan Copper ETF Plan Opposed by Michigan Senator Levin

JPMorgan Chase & Co.’s plan for an exchange-traded fund
linked to copper will disrupt supplies to the market and drive
up prices to “create a bubble and burst cycle” in the metal,
Senator Carl Levin told regulators.

Funds backed by copper would stockpile the metal and leave
less available for industrial users, including manufacturers and
builders, Levin said in a letter dated July 16 to the U.S.
Securities and Exchange Commission. Levin, a Michigan Democrat
and chairman of the Permanent Subcommittee on Investigations,
said a proposed rule change to list and trade the firm’s JPM XF
Physical Copper Trust should be denied.

ETFs trade like stocks, giving investors access to
commodities such as copper without taking physical delivery.
NYSE Arca Inc., the electronic platform of NYSE Euronext, filed
with the SEC to list and trade JPM XF Physical Copper Trust,
according to an April 2 document.

JPMorgan, BlackRock Inc. and ETF Securities Ltd. have said
they planned to start exchange-traded funds for industrial
metals. ETF Securities started the first exchange-traded
products backed by copper, nickel and tin in London in December
2010.

In the Courts

Bank of America to Settle Credit Protection and Syncora Cases

Bank of America Corp. won preliminary court approval of a
$20 million settlement of a consumer lawsuit over its marketing
of credit protection.

Credit card customers alleged that they were charged a
monthly fee for “Credit Protection Plus” and got nothing
meaningful in return, according to documents filed in federal
court in San Francisco. Bank of America charged customers for
the service without authorization, enrolled them through
deceptive marketing and improperly denied benefits, their
lawyers alleged.

Bank of America created a $20 million fund to pay card
holders who enrolled in the program starting in 2006. Some may
be eligible for $50 and $100 awards. The bank also agreed to
change some of its practices related to the program. U.S.
District Judge Thelton Henderson in San Francisco gave
preliminary approval to the settlement yesterday.

The bank denied wrongdoing, according to the settlement.
Betty Reiss, a spokeswoman for Charlotte, North Carolina-based
Bank of America, didn’t immediately return a voice-mail message
seeking comment about the accord.

Separately, Bank of America, the second-largest U.S. lender
by assets, agreed to pay Syncora Holdings Ltd.
$375 million as part of a deal to resolve a dispute over soured
mortgages.

The agreement with the bank will “have a materially
positive effect” on Syncora’s surplus, the Bermuda-based
insurer said in a statement. The cost of the settlement will be
covered by the bank’s reserves, said a person with knowledge of
the deal who asked not to be identified because the lender
hasn’t discussed it publicly.

Bank of America Chief Executive Officer Brian T. Moynihan,
52, has spent more than $40 billion cleaning up defective
mortgages tied to the 2008 purchase of Countrywide Financial
Corp. The settlement with Syncora follows a deal with bond
insurer Assured Guaranty Ltd. valued last year at $1.6 billion.

The Syncora dispute focused on insurance provided on
securitized pools of home equity lines of credit, Bank of
America has said in regulatory filings.

The credit protection case is In Re: Bank of America Credit
Protection Marketing and Sales Practice Litigation, 11-2269,
U.S. District Court (San Francisco).

The Syncora case is Syncora Guarantee Inc. v. Countrywide
Home Loans Inc., 650042/09E, Supreme Court of the state of New
York (Manhattan).

Wife of Convicted Ex-Credit Suisse Broker Fights for Assets

The wife of Eric Butler, a former Credit Suisse Group AG
broker convicted in a $1 billion fraud, is protesting the
government’s efforts to take over joint assets, according to a
federal court filing.

Elizabeth Butler yesterday objected to a recommendation
that the proceeds of joint accounts go to the government to
satisfy a $5 million fine and $250,000 forfeiture order. Eric
Butler began serving a five-year sentence in September for
crimes associated with misleading clients about securities
investments.

The government and the court “take the position that
because certain assets in the web of linked accounts were in Mr.
Butler’s name alone, this justifies giving Mrs. Butler nothing
from the accounts always considered hers, and holding funds she
earned,” according to the objection filed on behalf of the
Butlers.

A federal jury in Brooklyn, New York, convicted Butler in
August 2009 of intentionally misleading his institutional
clients, including GlaxoSmithKline Plc and Roche Holding AG,
about securities purchased on their behalf. Victims’ losses were
more than $1.1 billion, according to the government.

Butler and his partner, Julian Tzolov, who testified
against him at trial, falsely told their clients that securities
they were buying were backed by federally guaranteed student
loans. Tzolov pleaded guilty and was also sentenced to prison.

Robert Nardoza, a spokesman for the U.S. Attorney for the
Eastern District of New York, declined to comment on Elizabeth
Butler’s objection.

The case is U.S. v. Tzolov, 08-cr-370, U.S. District Court,
Eastern District of New York (Brooklyn).

Duke Energy Directors Sued Over CEO Switch in Progress Deal

Directors of Duke Energy Corp., the largest utilities
provider in the U.S., were sued over the ousting of Progress
Energy Inc.’s chief executive officer after the companies
merged.

Lesley C. Rupp, a Duke shareholder since 2009, alleged that
Duke CEO and Chairman James E. Rogers and other directors misled
investors and regulators and damaged the company’s reputation
when Progress CEO William D. Johnson was removed as head of the
combined companies hours after the deal closed.

The complaint was filed yesterday in Delaware Chancery
Court in Wilmington. The directors’ “conspiracy and tactics
have had a devastating effect on Duke’s credibility,” according
to the complaint.

Tom Williams, a spokesman for Duke Energy, said in an e-mailed statement that the company believes the lawsuit is
without merit and will defend itself vigorously.

JPMorgan Can’t Justify Withholding Probe E-Mails, FERC Says

JPMorgan Chase & Co. can’t show that 25 e-mails sought in
an investigation of possible energy-market manipulation contain
advice from lawyers and should remain out of reach of
regulators, the U.S. Federal Energy Regulatory Commission told a
federal magistrate.

The agency, in a filing yesterday in U.S. District Court in
Washington, said that JPMorgan made identical attorney-client
privilege claims for 28 other e-mails that were later turned
over to regulators. Some of the earlier e-mails that JPMorgan
claimed contained legal advice were messages that said “Great
job compliance,” “Are you being sarcastic?” and “Plse call
ASAP,” according to the filing.

“JPMorgan’s current privilege claims are the same as those
it improperly made about unprivileged documents,” Thomas Olson
and Vivian Chum, lawyers for the agency, wrote in the filing.

FERC sued JPMorgan on July 2 to release the e-mails in an
investigation of possible manipulation of power markets in
California and the Midwest by J.P. Morgan Ventures Energy Corp.
U.S. District Judge Colleen Kollar-Kotelly directed JPMorgan to
explain why the e-mails shouldn’t be turned over to
investigators.

JPMorgan, based in New York, submitted copies of the e-mails to the court on July 13 so they can be examined by U.S.
Magistrate Deborah Robinson, who is handling the dispute.

“Each of the e-mails relates to the advice of counsel with
respect to the investigation -- not the adoption of the bidding
practices under investigation,” Michele Roberts, a lawyer for
JPMorgan, wrote in the bank’s filing. “The only possible use
the commission could make of the e-mails would be to peer into
the details of respondent’s legal strategy.”

FERC opened the probe in August after complaints from
California and Midwest grid operators that JPMorgan’s bidding
practices were abusive, according to the agency’s initial court
filing.

Jennifer Zuccarelli, a JPMorgan spokeswoman, didn’t
immediately comment on yesterday’s filing because she hadn’t
seen it yet. Mary O’Driscoll, a FERC spokeswoman, didn’t
immediately respond to an e-mail message seeking comment on the
filing.

Goldman Settles Class-Action Over $698 Million Offering

Goldman Sachs Group Inc. reached a class settlement with
investors in a $698 million mortgage-backed securities offering,
a lawyer for the plaintiffs told a federal judge in New York.

David Wales, who represents the Public Employees’
Retirement System of Mississippi, told U.S. District Judge
Harold Baer in a letter made public yesterday that both sides
had accepted a settlement proposed by a mediator. Details of the
agreement weren’t disclosed.

Wales said the parties will file papers by July 31 asking
Baer to approve the settlement.

The Mississippi retirement fund sued in 2009, claiming New
Century Financial Corp., which originated the mortgages
underlying the securities, failed to adhere to its underwriting
standards and overstated the value of the collateral backing the
loans. The fund claimed Goldman Sachs didn’t conduct proper due
diligence when it bought the loans in 2005.

Baer in February granted a request by the Mississippi fund
to represent a class of more than 150 investors in the offering.

Michael DuVally, a Goldman Sachs spokesman, declined to
comment on the settlement.

The case is Public Employees Retirement System of
Mississippi v. Goldman Sachs Group Inc., 09-cv-01110, U.S.
District Court, Southern District of New York (Manhattan).